Our overarching themes for 2020 reflect a business climate likely demonstrating high levels of uncertainty along with a growing view from many global economists and forecasters of heightened concern over the ultimate future of global-wide trade over the coming years. A further theme we will include in our industry-specific predictions, is the ongoing disruption of online retail and its continuing implications to global logistics and parcel delivery entities in the coming year.

FedEx and Amazon Headlines Portend Ongoing Industry Disruption

A specific indicator of these specific forces can be taken from business headlines this very week.

From our perspective, global transportation and parcel carrier FedEx serves as the poster carrier in the prior explosion and scope of global-wide supply chains and international commerce. The carrier’s extensive air freight and express fleet coupled with FedEx Ground services have served global-wide businesses and supply networks in time-critical and other point-to-point transportation needs. Strategically, the carrier shunned a growth strategy concentrated on E-commerce related last-mile delivery, up to about a year or so ago. The reason stemmed from the high costs required in investing and sustaining the growth of this segment.

This blog has often highlighted FedEx’s financial performance as a signpost as to what is indeed happening both in global trade, in global supply networks and in the continuing transformation and impact of online retail on last-mile delivery providers.

On Tuesday, FedEx reported its fiscal second quarter financial performance and the news was not received well by investment community. Claiming higher than expected expenses in the quarter that ended in November, which also included Black Friday and Cyber Monday operations activity, the carrier reported a 40 percent drop in profit and a 3 percent decline in revenues. The company had to once again cut its earnings targets for the fourth time this year.

The Wall Street Journal characterized FedEx’s struggle as:”.. trying to adapt to a world where fewer packages are being flown around the globe and more are being delivered to people’s homes and warehouses.”

FedEx CFO Alan Graf indicated on the investor briefing call that despite hitting the bottom, the carrier will improve in the coming quarter and in the year 2020. He also declared that the carrier will start lapping Amazon starting in 2021.

Commenting on the FedEx shunning development, a report published yesterday titled: Amazon Throws Its Weight Around FedEx Feud,published from all places, The Washington Post, (Paid subscription or metered view) and owned by Jeff Bezos, Founder of Amazon, cast some dispersions on Amazon’s competitiveness and market influence. One specific passage indicates:

“Amazon’s role as both friend and foe to the third-party merchants that list on its marketplace and the delivery firms that it initially relied on to fulfill its promise of speedy shipping has drawn increasing scrutiny from lawmakers. To that end, it looks horrible for Amazon to be essentially blacklisting FedEx from anything to do with one of its key services while all the while ramping up its own logistics arm.”

The notions of how far Amazon has come in developing its own logistics and last-mile capabilities, was provided by a Business Network CNBC report last week, citing an estimate by Morgan Stanley indicating that Amazon Logistics is already delivering half of its own parcels in the U.S. for Prime and other customers in urban areas and: “will soon pass both UPS and FedEx in total volume.” Morgan Stanley’s data reportedly indicated that Amazon Logistics is now shipping at a rate of 2.5 billion parcels per year, compared to UPS volume of 4.7 billion parcels, and FedEx volumes of 3 billion parcels. The analysis further concludes that based on a current growth rate of 68 percent CAGR, Morgan Stanley views Amazon Logistics growing its potential volume rate to 6.5 billion packages per year in three years, or 2022.

As many industry watchers continually point out, this has always been Amazon’s strategic objective, and a good bulk of the investment funds comes from Amazon’s more lucrative margins produced by its Amazon Web Services (AWS) business, as well as it online retail business.

Take some time to let the above numbers sink in, and perhaps that is why FedEx has established its own 2021 goal to meet the threat of Amazon Logistics.

For several years, both FedEx and UPS had shunned the notions that Amazon would ever be a direct competitor in logistics and last-mile delivery capability. Why would the online retailer ever consider such a huge investment in a highly costly segment?

Business Network CNBC recently reminded in its reporting, it was only in September that FedEx began mentioning Amazon as a market competitor.

Reader Takeaway

In a short business headline cycle, supply chain management teams and their associated transportation and logistics services providers can truly obtain a snippet of the changing forces and ongoing risks impacting global based supply chains along with evidence of the industry disruption that is already underway.

Such parallel trends, contraction of global wide production and supply chain activity, and the exploding growth and buildout of dominant online retail platform providers point to some of the disruptive forces of business and industry changes that are underway.

Join us as we continue to further dive deeper into what to expect in the coming year.